Social Impact Bonds FAQs

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What is a social impact bond (SIBs)?

A SIB is a financial instrument that pays a return based on the achievement of agreed social outcomes.

Private investors provide upfront capital to cover the cost of delivering a service to achieve a particular social outcome.

Achievement of this outcome should reduce the need for, and therefore government spending on, acute services.

Part of the resulting public sector savings are then used to repay investors' principal investment and provide a financial return. The repayment of the principal and the level of return is performance-based, which means it depends on how much outcomes have improved.

Why is the Victoria government looking to implement SIBs?

SIBs can encourage innovation and provide service providers with the opportunity to develop holistic programs that have more impact in the longer term.

Accountability and transparency are improved by measuring outcomes and ensuring there is clarity about what public funding is achieving.

How do SIBs fit into the broader reform agenda?

SIBs can be a useful way to tackle some of the most difficult problems that are faced by governments by allowing service providers to explore new approaches to achieve the outcomes agreed with government.

SIBs support outcomes-based service delivery approaches and have a particularly strong element of measurement and evaluation of the effectiveness of services.

SIBs can be a tool that complements other reforms, and are in addition to universal service delivery programs and new forms of program delivery.

Creating an outcomes framework around SIBs also allows the success of the intervention to be measured and therefore replicated across other related or similar government services to ensure better individual outcomes.

What are the potential benefits for Victoria?

By providing financial incentives for service providers to focus on improving the results for individuals, governments should be able to obtain better outcomes.

Focusing on more holistic and wrap around services, providing early intervention and providing more focus on the causes of social issues helps to reduce future demand for acute services and frees up funds for other priority services.

SIBs improve the evidence base and availability of more robust data for policy decision making by government.

Are SIBs being used in other jurisdictions?

There are over 80 SIBs globally at last count with a number at various stages of development and implementation. Many SIBs have been implemented in the United Kingdom and the United States in particular.

There are SIBs in place in NSW, and Queensland and South Australia are at various stages in implementing SIBs in their jurisdictions.

What is the advantage of a SIB over a payment-for-result contract directly with service providers?

A SIB allows innovation in intervention design to be tested, while reducing the project risks to the service provider.

There are also advantages to private investor involvement in a SIB - it brings an additional rigor in evaluations and a focus on meeting outcomes which in turn improves the evidence base and availability of robust data for policy makers.

It provides not-for-profit agencies with upfront capital, and incentive to better manage efficiencies.

What kinds of investors are attracted to SIBs?

Banks and other financial institutions are looking for positive financial and social benefit returns. Many are actively considering their corporate social responsibilities.

There is also interest from trusts, foundations, philanthropists as well as individuals.

SIBs may also help normalise the idea of investing in social change by the private sector.

The Department of Treasury and Finance acknowledges Aboriginal and Torres Strait Islander people as the Traditional Custodians of the land and acknowledges and pays respect to their Elders, past and present.